Tax Development Highlights

The following is a summary of the most important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Developments concerning the Affordable Care Act (ACA). 

In the lead-up to the roll out of the health insurance exchanges on Oct. 1, 2013, the IRS issued the following guidance on the ACA:

Individuals:

  • The IRS released Questions and Answers (Q&As) on the health insurance premium tax credit on its website. This credit is designed to make health insurance affordable to individuals with modest incomes (i.e., between 100% and 400% of the federal poverty level, or FPL) who are not eligible for other qualifying coverage, such as Medicare, or “affordable” employer-sponsored health insurance plans that provide “minimum value.” To qualify for the credit, individuals must purchase insurance on a health exchange. The Q&As note that individuals can choose to have the credit paid in advance to their insurance company to lower what they pay for their monthly premiums, and then reconcile the amount paid in advance with the actual credit computed when they file their tax return. Alternately, individuals can claim all of the credit when they file their tax return for the year. The Q&As explain exactly who is eligible for the credit and address other important aspects of it.
  • The IRS issued final regulations on the “shared responsibility” payment under the ACA, which is the enforcement mechanism for the ACA’s mandate that most individuals maintain health insurance coverage. Starting in 2014, the individual shared responsibility provision calls for each individual to have basic health insurance coverage (known as minimum essential coverage), qualify for an exemption, or make a shared responsibility payment when filing a federal income tax return. Individuals will not have to make a payment if coverage is unaffordable, if they spend less than three consecutive months without coverage, or if they qualify for an exemption under one of several other reasons, including hardship and religious beliefs. The final regulations address these and other aspects of the shared responsibility payment.

Small Businesses:

  • The IRS issued proposed regulations on the tax credit available to certain small employers that offer health insurance coverage to their employees. This credit is available to an employer with no more than 25 full-time equivalent employees (FTEs) employed during its tax year, and whose employees have annual full-time equivalent wages that average no more than $50,000. However, the full credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of not more than $25,000. The proposed regulations would become effective when they are formally adopted as final regulations. However, employers may rely on the proposed regulations for tax years beginning after Dec. 31, 2013, and before Dec. 31, 2014.

Tax treatment of same-sex spouses. 

The IRS and other Federal agencies issued guidance on the treatment of same-sex spouses and couples for tax and other purposes in light of the Supreme Court’s landmark Windsor  decision striking down section 3 of the Defense of Marriage Act (DOMA), which had required same-sex spouses to be treated as unmarried for purposes of federal law. The key developments are as follows:

  • Effective as of Sept. 16, 2013, the IRS adopted a “state of celebration” rule in recognizing same-sex marriages. This means that same-sex couples who were legally married in jurisdictions that recognize their marriages (i.e., “state of celebration”) will be treated as married for federal tax purposes, regardless of whether their state of residence recognizes same-sex marriage. Spouse may retroactively apply this rule to open years.
  • Same-sex spouses who were legally married in a state that recognizes same-sex marriages must file their 2013 federal income tax return using either “married filing jointly” or “married filing separately” status, even if they now reside in a state that does not recognize same-sex marriage. Same-sex spouses who file an original 2012 tax return on or after Sept. 16, 2013 also generally must file using a married filing separately or joint filing status. Same-sex spouses may file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations on refunds.

The IRS provided optional special administrative procedures for employers to use to correct overpayments of employment taxes for 2013 and prior years for certain benefits provided and remuneration paid to same-sex spouses.

The Department of Labor’s (DOL)’s Employee Benefits Security Administration (EBSA) announced that it is following the IRS in recognizing “spouses” and “marriages” based on the validity of the marriage in the state of celebration, rather than based on the married couple’s state of domicile, for purposes of interpreting the meaning of “spouse” and “marriage” as these terms appear in the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and in Internal Revenue Code provisions that EBSA interprets.

  • In Frequently Asked Questions (FAQs) posted on the IRS’s website, the IRS made clear that same-sex and opposite-sex individuals who are in registered domestic partnerships, civil unions, or other similar formal relationships that aren’t marriages under state law aren’t considered as married or spouses for federal tax purposes.

New rules for deducting or capitalizing tangible property costs. 

The IRS issued new regulations for determining whether amounts paid to acquire, produce, or improve tangible property may be currently deducted as business expenses or must be capitalized. Among other things, they provide detailed definitions of “materials and supplies” and “rotable and temporary spare parts” and prescribe rules and elective de minimis and optional methods for handling their cost. They also have rules for differentiating between deductible repairs and capitalizable improvements, among many other items. The regulations generally are effective for tax years beginning on or after Jan. 1, 2014, but taxpayers can elect to apply them to certain pre-2014 years.

New rules for dispositions of certain depreciable property. 

The IRS issued proposed regulations that change several of the rules for dispositions of Modified Accelerated Cost Recovery System (MACRS) property. While the regulations are not final but merely proposed, taxpayers may rely on them. Included among the changes are rules that no longer treat structural components of a building as separate from the building and rules providing that partial dispositions generally are treated as dispositions.

New simplified relief for late elections pertaining to S corporations. 

The IRS provided simplified methods for taxpayers to request relief for late elections pertaining to S corporations. The relief covers the S corporation election itself, the electing small business trust (ESBT) election, the qualified Subchapter S trust (QSST) election, the qualified Subchapter S subsidiary (QSub) election, and late corporate classification elections which the taxpayer intended to take effect on the same date that the taxpayer intended that an S corporation election for the entity should take effect.

Simplified per-diem increase for post-Sept. 30, 2013 travel.

An employer may pay a per-diem amount to an employee on business-travel status instead of reimbursing actual substantiated expenses for away-from-home lodging, meal and incidental expenses (M&IE). If the rate paid doesn’t exceed IRS-approved maximums, and the employee provides simplified substantiation, the reimbursement isn’t subject to income- or payroll-tax withholding and isn’t reported on the employee’s Form W-2. In general, the IRS-approved per-diem maximum is the GSA per-diem rate paid by the federal government to its workers on travel status. This rate varies from locality to locality. Instead of using actual per-diems, employers may use a simplified “high-low” per-diem, under which there is one uniform per-diem rate for all “high-cost” areas within the continental U.S. (CONUS), and another per-diem rate for all other areas within CONUS. The IRS released the “high-low” simplified per-diem rates for post-Sept. 30, 2013 travel. The high-cost area per-diem increases $9 to $251, and the low-cost area per-diem increases $7 to $170.

Supreme Court to decide FICA tax treatment of severance pay. 

The Supreme Court agreed to review a decision of the Court of Appeals for the Sixth Circuit which held that severance payments aren’t wages for purposes of Federal Insurance Contributions Act (FICA) tax. Thus, the Supreme Court will resolve a circuit split that currently exists between the Sixth and Federal Circuit Courts on the issue.

Please don’t hesitate to contact us at info@templetonco.com or 561-798-9988 to begin discussing options specific to your tax situation.

New 3.8% Medicare Tax on “Unearned” Net Investment Income

High-income taxpayers will be hit with two big tax hikes under the recently enacted health overhaul legislation: a tax increase on wages and a new levy on investments.

To help offset the cost of providing health insurance to millions of Americans, the new law imposes an additional 0.9% Medicare tax on wages above $200,000 for individuals and $250,000 for married couples filing jointly. In addition, for higher-income households, the new law adds a 3.8% tax on unearned income, including interest, dividends, capital gains and other investment income.

It is the 3.8% surtax on “Unearned Income” that we write about today.

3.8% Tax on Unearned Income

Starting in 2013, high-income taxpayers will be subject to a new tax based on net investment income—a 3.8% Medicare contribution tax.  The Health Care and Reconciliation Act of 2010, which amends the Patient Protections and Affordable Care Act, outlines the new Medicare tax.  Here’s an overview of what the new tax will mean to you, and some methods to review to lessen the impact of this tax.

What is the Net Investment Income Tax (NIIT)?

Section 1411 of the Internal Revenue Code imposes The Net Investment Income Tax (NIIT). The NIIT is a tax of 3.8% on certain net investment income of individuals, estates and trusts that have income above certain threshold amounts.

Who is subject to the Net Investment Income Tax?

This new tax will only affect taxpayers whose modified adjusted gross income (MAGI) exceeds $250,000 for joint filers and surviving spouses, $200,000 for single taxpayers and heads of household, and $125,000 for married individuals filing separately. Estates and Trusts will be subject to the Net Investment Income Tax if they have undistributed Net Investment Income, and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year (for tax year 2012, this threshold amount is $11,650).

(For individuals, your AGI is the bottom line on Page 1 of your Form 1040. It consists of your gross income minus certain adjustments to income. If you claimed the foreign earned income exclusion, you must add back the excluded income for purposes of the 3.8% tax.)

If your AGI is above the threshold that applies to you ($250,000, $200,000 or 125,000), the 3.8% tax will apply to the lesser of (1) your net investment income for the tax year or (2) the excess of your AGI for the tax year over your threshold amount. This tax will be in addition to the income tax that applies to that same income.

Example 1: Taxpayer, a single filer, has wages of $180,000 and $15,000 of dividends and capital gains. Taxpayer’s modified adjusted gross income is $195,000, which is less than the $200,000 statutory threshold. Taxpayer is not subject to the Net Investment Income Tax.

Example 2: A married couple that has AGI of $270,000 for 2013, of which $100,000 is net investment income. They would pay a Medicare contribution tax on only the $20,000 amount by which their AGI exceeds their threshold amount of $250,000. That is because the $20,000 excess is less than their net investment income of $100,000. Thus, the couple’s Medicare contribution tax would be $760 ($20,000 × 3.8%).

What is net investment income (NII)?

The net investment income that is subject to the 3.8% tax consists of interest, dividends, annuities, royalties, rents, and net gains from property sales. Income from an active trade or business isn’t included in net investment income, nor is wage income.

Passive business income (within the meaning of IRC section 469) is subject to the Medicare contribution tax. Thus, rents from an active trade or business aren’t subject to the tax, but rents from a passive activity are subject to the tax (however, deductible expenses related to rental income will reduce the amount subject to this tax). Income from a business of trading financial instruments or commodities is also included in net investment income.

Income that is exempt from income tax, such as tax-exempt bond interest, is likewise exempt from the 3.8% Medicare contribution tax. Thus, switching some of your taxable investments into tax-exempt bonds can reduce your exposure to the 3.8% tax. Of course, this should be done with regard to your income needs and investment considerations.

Home sales.

Let’s review how the 3.8% tax applies to home sales. If you sell your main home, you may be able to exclude up to $250,000 of gain, or up to $500,000 for joint filers, when figuring your income tax. This excluded gain won’t be subject to the 3.8% Medicare contribution tax.

However, gain that exceeds the limit on the exclusion will be subject to the tax. Gain from the sale of a vacation home or other second residence, which doesn’t qualify for the income tax exclusion, will also be subject to the Medicare contribution tax.

For example, a married couple has AGI of $200,000 for 2013 and in addition sold their main home for a $540,000 gain. The couple qualified for the full $500,000 exclusion of gain on the sale, leaving only $40,000 of taxable gain. As a result, the couple won’t be subject to the 3.8% tax, because their total AGI ($200,000 + $40,000) will fall below the $250,000 threshold.

Using the aforementioned example, if the gain on the home sale was $680,000, of which $180,000 was taxable, the couple would be subject to the 3.8% tax on $130,000 of the gain. That is the amount by which their total AGI of $380,000 ($200,000 + $180,000) exceeds their $250,000 threshold.

Exceptions from Net Investment Income

Distributions from qualified retirement plans, such as pension plans and IRAs, aren’t subject to the Medicare contribution tax. However, those distributions may push your AGI over the threshold that would cause other types of investment income to be subject to the tax.

This makes Roth IRAs more attractive for higher-income individuals, because qualified Roth IRA distributions are neither subject to the Medicare contribution tax nor included in AGI.

The tax also does not apply to the gain related to the sale of an interest in an S Corporation or partnership, to the extent that the gain on assets held by the entity is from an active trade or business.

What investment expenses are deductible in computing NII?

To determine NII, Gross Investment Income (items described above) is reduced by deductions that are properly allocable. Examples of allocable deductions would include investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, and state and local income taxes properly allocable to items included in Net Investment Income.

How the Net Investment Income Tax is Reported and Paid

For individuals, the tax will be reported on, and paid with, the Form 1040. For Estates and Trusts, the tax will be reported on, and paid with, the Form 1041.

The Medicare contribution tax must be included in the calculation of estimated tax that you owe. Thus, if you will be subject to the tax, you may have to make or increase your estimated tax payments to avoid a penalty.

Planning Strategies

Fortunately, there are a number of effective strategies that can be used to reduce MAGI and or NII and reduce the base on which the surtax is paid. Strategies may include (1) Roth IRA conversions, (2) tax exempt bonds, (3) tax-deferred annuities, (4) life insurance, (5) meet the “Material Participation” requirements for your S Corp and Partnership holdings, (6) become a “Real Estate Professional” for purposes of holding rental real property (7) oil and gas investments, (8) timing estate and trust distributions, (9) charitable remainder trusts, and (10) installment sales and maximizing above-the-line deductions.

We would be happy to explain how these and other strategies might minimize your exposure to the Internal Revenue Code Section 1411  surtax. 

Please don’t hesitate to contact us at info@templetonco.com or 561-798-9988 to begin discussing options specific to your tax situation. 

Tax breaks for businesses from the 2012 American Taxpayer Relief Act

In addition to the lofty package of tax relief for individuals, the recently enacted 2012 American Taxpayer Relief Act extends a host of important tax breaks for businesses. We’ve put together a list to give you an overview of its impact. For more detailed information and to determine how it will affect your business, give us a call at 561-798-9988.

The following depreciation provisions are retroactively extended by the Act:

  • Fifteen-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
  • Seven-year recovery period for motor sports entertainment complexes.
  • Accelerated depreciation for business property on an Indian reservation.
  • Increased expensing limitations and treatment of certain real property as Section 179 property;
  • Special expensing rules for certain film and television productions; and
  • The election to expense mine safety equipment.

The new law also extends and modifies the bonus depreciation provisions with respect to property placed in service after Dec. 31, 2012, in tax years ending after that date.

The following business credits and special rules are also extended:

  • The research credit is modified and retroactively extended for two years through 2013.
  • The temporary minimum low-income tax credit rate for nonfederally subsidized new buildings is extended to apply to housing credit dollar amount allocations made before Jan. 1, 2014.
  • The housing allowance exclusion for determining area median gross income for qualified residential rental project exempt facility bonds is extended two years.
  • The Indian employment tax credit is retroactively extended for two years through 2013.
  • The new markets tax credit is retroactively extended for two years through 2013.
  • The railroad track maintenance credit is retroactively extended for two years through 2013.
  • The mine rescue team training credit is retroactively extended for two years through 2013.
  • The employer wage credit for employees who are active duty members of the uniformed services is retroactively extended for two years through 2013.
  • The work opportunity tax credit is retroactively extended for two years through 2013.
  • Qualified zone academy bonds are retroactively extended for two years through 2013.
  • The enhanced charitable deduction for contributions of food inventory is retroactively extended for two years through 2013.
  • Allowance of the domestic production activities deduction for activities in Puerto Rico applies for the first eight tax years of the taxpayer beginning after Dec. 31, 2005, and before Jan. 1, 2014.
  • Exclusion from a tax-exempt organization’s unrelated business taxable income (UBTI) of interest, rent, royalties, and annuities paid to it from a controlled entity is extended through Dec. 31, 2013.
  • Treatment of certain dividends of regulated investment companies (RICs) as “interest-related dividends” is extended through Dec. 31, 2013.
  • Inclusion of RICs in the definition of a “qualified investment entity” is extended through Dec. 31, 2013.
  • The exception under subpart F for active financing income (i.e., certain income from the active conduct of a banking, financing, insurance or similar business) for tax years of a foreign corporation beginning after Dec. 31, 1998, and before Jan. 1, 2014, for tax years of foreign corporations beginning after Dec. 31, 2005, and before Jan. 1, 2014.
  • Look-through treatment for payments between related controlled foreign corporations (CFCs) under the foreign personal holding company rules is extended through Jan. 1, 2014.
  • Exclusion of 100% of gain on certain small business stock acquired before Jan. 1, 2014.
  • Basis adjustment to stock of S corporations making charitable contributions of property in tax years beginning before Dec. 31, 2013.
  • The reduction in S corporation recognition period for built-in gains tax is extended through 2013, with a 10-year period instead of a 5-year period.
  • Various empowerment zone tax incentive, including the designation of an empowerment zone and of additional empowerment zones (extended through Dec. 31, 2013) and the period for which the percentage exclusion for qualified small business stock (of a corporation which is a qualified business entity) is 60% (extended through Dec. 31, 2018).
  • Tax-exempt financing for New York Liberty Zone is extended for bonds issued before Jan. 1 2014.
  • Temporary increase in limit on cover over rum excise taxes to Puerto Rico and the Virgin Islands is extended for spirits brought into the U.S. before Jan. 1, 2014.
  • American Samoa economic development credit, as modified, is extended through Jan. 1, 2014.

For additional information, contact either Steve Leone, CPA, sleone@templetonco.com or Emma Pfister, CPA,epfister@templetonco.com.

2013 Tax Planning

People get ready.

More individuals will be snared by the alternative minimum tax (AMT), and various deductions. Other tax breaks will be unavailable. As a result of expiring Bush-era tax cuts, individuals will face higher tax rates next year on their income, including capital gains and dividends, and estate tax rates will also be higher. AMT became problematic this year because exemptions have dropped and fewer personal credits can be used to offset them.

Additionally, a number of tax provisions expired at the end of 2011 or will expire at the end of 2012. For example, rules that expired at the end of 2011 include:

  • Research credit for businesses.
  • Election to take an itemized deduction for state and local general sales taxes instead of the itemized deduction permitted for state and local income taxes.
  • Above-the-line deduction for qualified tuition expenses.
  • Rules that expire at the end of 2012 include:
  • Generous bonus depreciation allowances and expensing allowances for business.
  • Expanded tax credits for higher education costs.


Remember, these adverse tax consequences are by no means a certainty as Congress and President Obama could extend the Bush-era tax cuts for some or all taxpayers and retroactively “patch” the AMT for 2012. This would increase exemptions and availability of credits, revive some favorable expired tax rules and extend those that are slated to expire at the end of this year. 

But – this is not the time for inaction. The prospect of higher taxes next year makes it even more important to engage in year-end planning now.

We’ve put together a list of considerations for individuals and businesses that will guide you through these challenges. While not all actions will apply to your particular situation, many of these moves may benefit you. For further explanation or clarification, please call us at 561-798-9988.

Year-End Tax Planning Moves for Individuals

• Increase your FSA. Set aside more for next year in your employer’s health flexible spending account (FSA). Next year, the maximum contribution to a health FSA is $2,500. Remember – you will no longer be able to set aside amounts to get tax-free reimbursements for over-the-counter drugs, such as aspirin and antacids. 
• Make HSA contributions. If you became eligible to make health savings account (HSA) contributions late this year (even in December), you can make a full year’s worth of deductible HSA contributions even if you were not eligible to make HSA contributions for the entire year. 
• Realize losses on stock while preserving your investments. There are several ways this can be done. For example, you can sell the original holding then buy back the same securities at least 31 days later. It would be advisable for us to meet to discuss year-end trades you should consider making. 
• Sell assets before year-end. If you are thinking of selling assets that are likely to yield large gains, such as inherited, valuable stock, or a vacation home in a desirable resort area, make the sale before year-end while still paying attention to the market. 
• Sell and repurchase stock. You may own appreciated-in-value stock and want to lock in a 15% tax rate on the gain, but you think the stock still has plenty of room to grow. In this situation, consider selling the stock and then repurchasing it. You’ll pay a maximum tax of 15% on long-term gain from the stock you sell. You also will wind up with a higher basis (cost, for tax purposes) in the repurchased stock. 
• Make contributions to Roth IRAs. Roth IRA payouts are tax-free and immune from the threat of higher tax rates, as long as they are made after a five-year period, and on or attaining age 59-½, after death or disability, or for a first-time home purchase. 
• Convert traditional IRAs to Roth IRAs. This will help you avoid a possible hike in tax rates next year. Also, although a 2013 conversion won’t be hit by the 3.8% tax on unearned income, it could trigger that tax on your non-IRA gains, interest, and dividends. Conversions, however, should be approached with caution because they will increase your adjusted gross income [AGI] for 2012. 
• Take required minimum distributions from retirement plans. This is applicable if you have reached age 70-½. Failure to take a required withdrawal can result in a penalty equal to 50% of the amount of the RMD not withdrawn. If you turn age 70-½ this year, you can delay the first required distribution to 2013, but if you do, you will have to take a double distribution in 2013—the amount required for 2012 plus the amount required for 2013. Think twice before doing this. 
• Deduct your medical expenses. This year, unreimbursed medical expenses are deductible to the extent they exceed 7.5% of your AGI, but in 2013, for individuals under age 65, these expenses will be deductible only to the extent they exceed 10% of AGI. 
• Shelter gifts. Make gifts sheltered by the annual gift tax exclusion before the end of the year to save gift and estate taxes. You can give $13,000 in 2012 to each of an unlimited number of individuals but you can’t carry over unused exclusions from one year to the next. 

Year-End Tax Planning Moves for Business Owners

• Consider stock redemption. If your business is incorporated, consider taking money out of the business through a stock redemption. The buy-back of the stock may yield long-term capital gain or a dividend, depending on a variety of factors. But either way, you’ll be taxed at a maximum rate of only 15% if you act this year. Wait until next year and your long-term gains or dividends may be taxed at a higher rate if reform plans are instituted or the Bush-era tax cuts expire. Contact us for help on executing an effective pre-2013 corporate distribution. • Hire a veteran. If you are thinking of adding to payroll, consider hiring a qualifying veteran before year-end to qualify for a work opportunity tax credit (WOTC). Under current law, the WOTC for qualifying veterans won’t be available for post-2012 hires. The WOTC for hiring veterans ranges from $2,400 to $9,600, depending on a variety of factors (such as the veteran’s period of unemployment and whether he or she has a service-connected disability). 
• Put new business equipment and machinery in service. This will allow you to qualify for the 50% bonus first-year depreciation allowance. Unless Congress acts, this bonus depreciation allowance generally won’t be available for property placed in service after 2012. (Certain specialized assets may, however, be placed in service in 2013.) 
• Make expenses qualifying for the business property expensing option. The maximum amount you can expense for a tax year beginning in 2012 is $139,000 of the cost of qualifying property placed in service for that tax year. The $139,000 amount is reduced by which the cost of qualifying property placed in service during 2012 exceeds $560,000 (the investment ceiling). For tax years beginning in 2013, unless Congress makes a change, the expensing limit will be $25,000 and the investment ceiling will be $200,000. 
• Buy a SUV. If you are in the market for a business car, and your taste runs to large, consider buying heavy SUVs (those built on a truck chassis and rated at more than 6,000 pounds gross (loaded) vehicle weight). Due to a combination of favorable depreciation and expensing rules, you may be able to write off most of the cost this year. Next year, the write off rules may not be as generous. 

These considerations are just the beginning to creating a plan that will work for you. Whether you are planning for your family or business, contact us to discuss these options further.

Health care

Health care continues to be one of the more contemptuous issues our country faces. And no wonder, in 2011 alone, the U.S. spent $8,400 per person compared to the next highest-spending country, Norway at $5,352.

Since 2002, family premiums for employer-sponsored health care have increased by a whopping 97 percent placing the cost burdens on employers and workers.

The drivers of these cost increases include an aging Baby Boomer generation that is creating more patients and more treatments, a need for long term care for chronic illnesses, more sophisticated treatments and technology, and increasing inefficiencies, malpractice and administrative costs.

On March 23, 2010 President Obama signed the Patient Protection and Affordable Care Act (otherwise known as ObamaCare) into law. This law, while intending to offer more affordable health care to individuals and families, requires much employer compliance and action.

Overall the Act requires most U.S. citizens and legal residents to have health insurance by creating state-based American Health Benefit Exchanges through which individuals can purchase coverage, with premium and cost-sharing credits. These credits are available to individuals and families with income between 133-400 percent of the federal poverty level.

Separate Exchanges will also be created that will allow small businesses to purchase coverage. Employers will be required to pay for penalties for employees who receive tax credits for health insurance through an Exchange, with exceptions for small employers. New regulations on the health plans in these Exchanges will also be imposed in the individual and small group markets. Medicaid will also be expanded to 133 percent of the federal poverty level.

As this law moves into action and even if it is repealed, one thing is certain – change. It’s clear that quality, price and service are often sacrificed in the current health care model. So the change will have to come from employers, providers, physicians, payers and insurers. This is how:

• Employer driven change – 60 percent of the under 65 population have insurance through their employers and all are negatively impacted by escalating costs and inadequate quality. As a result, educating those employees is a must as well as focusing more on wellness and prevention.

• Provider/Physician change – Health care providers will go from a fee-based model to a newer value-based model and focus on being more accountable in their care. There will be consolidation and newer business models that require increased use of data analytics and clinical intelligence.

• Payer/Insurer change – By moving the focus away from claims processing to more collaboration in an effort to improve care and manage costs. There will also be a shift from administrator to supplier of data analytics/clinical intelligence.

So the question becomes for employers – are you going to pay or play ObamaCare?

Play means employers offer minimum essential coverage to all of your full-time employees.

Pay is an excise tax if you do not offer minimum essential coverage (or any coverage) and at least one of your full-time employees is certified as having enrolled in coverage through a state health exchange for which he or she received a premium tax credit or cost sharing reduction. This tax is applicable to employers with 50 or more full-time employees on average per business day. The monthly penalty (non deductible) is $166.67 (1/12 of $2,000) times the total number of full-time employees for the month minus 30.

What to do?

Look at your workforce Employers need to evaluate their workforce and look at their employees (both full-time and part-time) and see if any could be reclassified as employees for purposes of the mandate.

Business structure Employers also need to understand if their current business structure or model could cause the company to be subject to the employer mandate – and see if there are circumstances under which they could restructure to avoid the mandate.

Learn about Health Insurance Exchanges Examine the relationship between the employer mandate and the individual mandate and how the health insurance Exchanges that will be put in place in 2014 will provide opportunities for some employers and many individuals to acquire such coverage.

Florida recently returned $1 million planning grant to the federal government and has set up a non-ACA compliant health care initiative. However, if the state doesn’t set up an ACA compliant exchange, the federal government will.

Employers need to act now and consider an overall benefit redesign with an emphasis on better employee health. They should also set up and access information systems and reporting for compliance and start discussions with payers and providers that consider risk sharing.

Though overturning ObamaCare would mean relief from this compliance burden and potential penalties, it doesn’t necessarily change the need for an employer’s strategic evaluation of their workforce, business structure, overall plan design and employee communications.

This work upfront can save you a lot of heartache and expense down the road.

 For more information, please e-mail info@templetonco.com.

Top 10 Lessons Learned: A CPA Firm

Templeton & Company, a 50-person CPA firm headquartered in South Florida, implemented Microsoft Dynamics CRM in 2002.  Although the company has a subsidiary firm, Templeton Solutions, which a Microsoft Dynamics Partner, the accounting practice still dealt with its own struggles and challenges in rolling out the solution firm-wide.  Here are their lessons learned:

  1. Tightly integrated process/people/technology.  With your business processes and workflow outlined and mapped out, it will enable your firm to easily address and visualize how it should be automated in the system.  Many companies who do not have this mapped out run into the pitfalls of trying to have the technology guide how they run their business. It should be the other way around, otherwise, it’s just a waste of resources.
  2. Define your goals. What is your picture of success?  Do you want to have a one-firm approach to clients and prospects?   Having measurable goals in-place from the outset will help you better gauge whether or not your implementation is “worth it.”
  3. Establish the team. The team should be comprised of members of the marketing team, IT group the leadership team as well as other users – maybe even from other offices so you can garner a true cross-section of your firm.
  4. Manage Expectations: Tell the story as to why this is a tool that will benefit all users and plan to show them how.  Communicate effectively and routinely
  5. Promote from within.  Think about the communications train and each stop along the way.  Talk about the process that the firm will go through, that the firm is going through, and what the end result will look like.  Don’t assume everyone knows what’s going on.
  6. Identify “WIIFM” What’s in it for me across the entire firm.  If you are expecting people to shift gears as far as how they work and operate and get them out of their comfort zone, be sure to back it up by explaining what the firm will accomplish with their participation.
  7. Quick wins are important.  Roll CRM out in phases, and don’t make the common mistake of biting off more than you can chew at any given time.
  8. Meet face-to-face consistently. Gather the pre-determined team and set  up weekly or bi-monthly meetings.  Be open to feedback during the meetings
  9. Measures of accountability.  Define what will motivate your team to use it whether it be compensation, peer pressure, or the new firm standard. Stick to it!
  10. People need single source for all their needs and questions.  Have a sort of ombudsman who has the soft skills where staff will feel comfortable addressing concerns to him or her, but also have the technical knowledge and authority to make sure that the message is heard from the technical and pre-established internal CRM team.

Issues facing businesses

By: Steven Templeton, CPA, CVA, Managing Partner

International Financial Reporting Standards (IFRS)

After the Enron debacle, the American Institute of Certified Public Accountants (AICPA) assumed a leadership role in the rush toward an international set of accounting standards (IFRS).  The long and proud independent standard setting process in the United States of America is being phased out in favor of an international standard setting process with an international governing body, the International Accounting Standards Board (IASB).  So what’s the big deal?

Confusing Standards?

So will we have a single, simple, principles-based global set of accounting standards?  Not so fast, my friend!  Initially, public companies will be required to convert to IFRS while private US companies could choose to adopt IFRS for small- and mid-sized entities or could, along with not-for-profit organizations, continue to report under generally accepted accounting principles in the United States.  Bankers, investors, analysts and other users of financial statements will need to be cognizant of the differences and understand them in order to properly analyze financial statements and make useful industry comparisons.

The AICPA released results of a survey showing that more than 80% of AICPA Council members strongly support GAAP differences for U.S. private companies and not-for-profit entities from the international GAAP that will be required for U.S. public companies.  It’s safe to say that the support for a universal adoption of IFRS for public and private companies alike is weak.

Interestingly, Charles Niemeier is also more broadly challenging the conversion to IFRS. He was a member of the Public Company Accounting Oversight Board and was previously the U.S. Securities and Exchange Commission chief accountant in the Division of Enforcement and co-chair of the SEC Financial Fraud Task Force. Overall, he is not in favor of switching from U.S. GAAP to IFRS, and suggests that we continue to fix what’s broken as opposed to converting to a whole new set of less mature standards.

Convergence or Conversion?

Early on, the IFRS conversation centered around “convergence,” giving one the impression of an evolutionary process whereby US standard setters would work with the global International Accounting Standards Board (IASB) to achieve a common set of high-quality, accepted accounting principles.  As it stands today, there are broad areas of disagreement between IFRS and US GAAP and a myriad of issues addressed by US GAAP with a non-existing IFRS counterpart.  In short, US public companies are being required to convert from US GAAP, the gold standard of accounting principles, to the inferior, less developed international standards.  Rather than allow IFRS to converge with US GAAP over time, the international G-20 leaders have called for the new global set of accounting standards to be completed by June 2011, ready or not!

Here’s what Mr. Niemeier had to say about the process of converging United States generally accepted accounting principles with IFRS:

“I agree with the original goal of the International Accounting Standards Board and Financial Accounting Standards Board to enhance comparability of financial reporting by converging their standards based on quality.  Unfortunately, in the last few months the focus has changed from achieving comparability of financial reporting to establishing a set timetable to switch the U.S. to IFRS. This change de-emphasizes the quality of the standards in favor of speed, and appears to be more based in politics than in what is in the best interests of investors.  For a number of reasons, I believe that this new path has the potential of de-linking us from our current regulatory model. Instead, in my view, we need to return to a policy of convergence, where we focus on substantive milestones, not timing.”

At What Cost?

Larger public companies are beginning to assess the enormous cost and effort required to convert their transaction processing and financial reporting systems to accommodate IRFS.  If accounting is the language of business, IFRS adopter company personnel, including accounting staff, business managers, executives, and board members, must learn this new foreign language.

Barry C. Melancon, AICPA president and CEO, has called for a permanent, independent funding mechanism for the International Accounting Standards Committee Foundation, the governing body of the IASB.  In the United States, the AICPA will encourage the Securities and Exchange Commission to use part of the current levy on U.S. public companies for accounting standard setting activities as a permanent funding source for the IASB, Melancon said.

Who Will Write the Rules and Who Pays?

There will be 16 IASB standard writers of which only two will be from the United States.  Naturally, the United States will provide the super majority of the IFRS funding.

It’s Time to Get Involved.

IFRS is not an issue best left to the back office bean counters to deal with.  Now is the time for all U.S. financial system stakeholders to understand the movement toward IFRS and consider the possible ramifications, good or bad.  Interested parties should take the following steps:

  • Monitor the progress of the IFRS convergence/conversion and take appropriate action.
  • Learn: Attend relevant seminars on the subject matter
  • Share: Inform others within and without your organization to properly prepare for the transition.
  • Speak out: Let the AICPA, the SEC and others know your views on IFRS, its applicability to U.S. public and private companies, and the proposed implementation timetable.

It is our responsibility to our profession and our clients to stay abreast of this issue and do what we can to make sure that international politics do not trump good sense and that the baby is not discarded with the bathwater.

For more information on IFRS or any other accounting concerns,  please contact: info@templetonco.com